The Nest Egg is Feeling Fragile
By Admin
This article from the Washington Post notes that many families are not earning what they had expected from their savings, causing them to rethink retirement plans and wonder how they will pay for such high cost items as college for their children. The article doesn’t delve into the economic inequalities being created by the Federal Reserve’s artificial lowering of interest rates. Savers and retirees trying to get by on a “nest egg” are being penalized, while those who receive a pension or government benefits like social security still receive full benefits. With many in government thinking that converting from fixed pensions to 401(k) like retirement plans will help reduce the burden of unfunded pension liabilities on government and private sector firms, we ought to do more to address the penalties to savings inherent in our current system.
Economist Raghu Rajan describes some reasons he thinks the Federal Reserve should exit its policy of ultra low rates, the first of which is:
After all, there is a direct cost to maintaining ultra-low rates, and it is paid by anyone who has financial assets and is forgoing the normal return on them. Assume owners of financial assets hold 20 trillion dollars worth of them (this is an underestimate) and are paid 2% lower real rates per year than they would otherwise obtain because of the Fed’s policy of maintaining zero nominal rates. This implies an annual stimulus of $400 billion in real money, off the backs of those who own financial assets. Given that it has been going on for two years, this is a subsidy that is now bigger than TARP (and coincidentally, also goes largely to bankers who are the biggest short term borrowers in the market). If the government raised taxes explicitly to provide the interest subsidy, everyone would scrutinize the use this money was being put to carefully. Because the Fed picks investors’ pockets silently and forcibly through its ability to set the short term interest rate, no one asks questions about cost.
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By hdnelson
Each month we try to compare some reports about the national real estate market to what we see in our local markets. While nationally the blog Calculated Risk reported that short sales increased significantly in the 4th quarter, we only saw 27% (a very modest rise if any) of last year’s short sales close in Q4. There was also a report from Marc Hanson that the percentage of REO (bank owned) sales In December fell in California as an overall percentage of sales in that market. In our market the number of closed sales that were bank owned rose from 38 in November to 43 in December (up 12%). Our market agrees with the article that $200-300k is the new normal for homebuilders. The article shows that the percentage of sales in the west under $300k was 42% in 2007, but is now 65%. In Kitsap County, the percentage of sales under $300k was 54% (1945 of 3615 total sales) in 2007 and in 2011 was 72% (1829 of 2538 total sales). More at http://tinyurl.com/7pljyjx
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By hdnelson
The number of closed sales in Kitsap County in January fell about 37% from December and was about 6% lower than a year ago. Pending sales rose about 42% compared to last month and were about 16% higher than a year ago. In December, there were 195 closed sales and 191 pending sales. In January there were 123 closed sales and 275 pending sales. 48% of the closed sales were distressed properties (compared to 32% last month). 46% of the pending sales were distressed properties (compared with 38% last month). Among closed distressed sales, bank owned sales were more than 3 times the number of short sales closed. This month we will report that the median price dropped sharply. This reflects the higher percentage of sales that were distress properties. More at http://www.prowserealestate.com/Blog/Kitsap-Real-Estate-Market-Report-February-2012
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By hdnelson
The influential real estate and economics blog Calculated Risk has posted that “The Housing Bottom is Here”. He differentiates between new home sales increasing - this is happening already - and housing prices reaching a bottom, which he thinks nationally will occur in March 2012.
There are several reasons I think that house prices are close to a bottom. First prices are close to normal looking at the price-to-rent ratio and real prices (especially if prices fall another 4% to 5% NSA between the November Case-Shiller report and the March report). Second the large decline in listed inventory means less downward pressure on house prices, and third, I think that several policy initiatives will lessen the pressure from distressed sales.
See http://www.calculatedriskblog.com/2012/02/housing-bottom-is-here.html
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